On Monday, March 25, 2019, ISO New England, Inc. (“ISO-NE”) filed a proposal with FERC for an interim inventoried energy program that would provide incremental compensation to generation resources that store fuel onsite during winter months. ISO-NE’s filing explains that a key contributor to the region’s winter energy security concerns is its reliance on gas deliveries from the interstate pipeline network, which can become constrained during winter cold spells, and that lack of on-site fuel sources during these cold spells can lead to loss of load events. ISO-NE seeks to reduce this concern by directly compensating generation resources for maintaining “inventoried energy,” defined as “fuel or potential energy that a resource can convert to electric energy at the ISO’s direction.” The proposal is intended as an interim measure to complement the ISO’s ongoing efforts to develop a long-term, market-based solution to the region’s fuel security challenges. The ISO believes that the program will contribute to the region’s winter energy security by providing incremental revenue to generation resources that store fuel on-site, reducing the amount of revenue those resources must recover through the capacity market, and decreasing the likelihood that such resources will seek to retire. However, ISO-NE also clarified that it cannot guarantee that the program will “incent specific resources to take precise actions that improve winter energy security or deter any particular resource that would otherwise be economic from retiring.”

ISO-NE’s inventoried energy program proposal is the latest installment in its efforts to address fuel security concerns in compliance with FERC’s July 2, 2018 order directing ISO-NE to: (1) file Tariff revisions by August 31, 2018 to provide for a short-term, cost-of-service agreement to address demonstrated fuel security concerns; and (2) file Tariff revisions that improve the market design in New England to better address fuel security concerns. (See July 11, 2018 edition of the WER.) ISO-NE made the first of these required filings on August 31, 2018 by filing Tariff revisions that included, among other things, provisions for a short-term, cost of service agreement for resources retained for fuel security reasons. In that filing, ISO-NE also committed to work with stakeholders to identify an interim solution to its fuel security concerns that could be implemented for the 14th and 15th Forward Capacity Auctions and in conjunction with ongoing efforts to develop a long-term, market-based solution. (As reported in the December 12, 2018 edition of the WER, FERC accepted these tariff revisions in a December 3, 2018 order.)

The inventoried energy program is ISO-NE’s proposed interim solution. As proposed, the program would be triggered on any calendar day in December, January, or February for which the average high and low temperature is less than or equal to 17 degrees Fahrenheit (“Inventoried Energy Day”) and would employ a two-settlement structure with a forward and spot component. A resource that chooses to participate only in the spot component of the program would be paid the spot rate for each MWh of inventoried energy maintained on each Inventoried Energy Day. A resource that elects to participate in both the forward and spot components would be paid the forward rate for each MWh of inventoried energy that is sold forward, and paid again (or charged) at the spot rate for any deviations between the MWh of inventoried energy maintained for each Inventoried Energy Day and the MWh of inventoried energy sold forward. For example, a resource that provides more inventoried energy than was obligated in its forward sale will receive a positive payment, while a resource that delivers less will be charged for each MWh short of its forward sale. A participant that delivers inventoried energy in an amount exactly equal to its forward sale will not be paid or charged.

If accepted by FERC, the program is scheduled to be in place during the winters of 2023-2024 and 2024-2025, in the capacity commitment periods associated with the 14th and 15th Forward Capacity Auctions. ISO-NE states that oil, coal, nuclear, biomass, and refuse generators will generally be able to participate in its Inventoried Energy Program, as well as certain hydro, pumped storage, and demand response resources. Natural gas resources that “contract for the firm delivery of gas that can be called upon to produce electric energy at the ISO’s direction” would also be eligible, as would storage facilities, so long as these resources’ electric charge can be converted into energy at the ISO’s direction. Solar and wind resources will not be permitted to participate, nor will resources retained for reliability purposes and compensated via a cost-of-service agreement.

ISO-NE’s proposal is available here.